UAE. Etihad Airways, Abu Dhabi's flagship carrier which is on an expansion spree, said it has acquired a 4% stake in Virgin Australia Holdings (VAH.AX) through the stock market, deepening its alliance with the Australian airline.

The stake has been bought through market purchases in recent weeks, Etihad said in a statement on Tuesday. The airline did not say how much it paid for the stake and whether it plans to increase the stake in future.

"Etihad Airways believes that this equity investment in Virgin Australia's domestic operations significantly strengthens the 10-year strategic partnership forged by the two carriers in August 2010," the statement said.

Eight-year-old Etihad is attempting to gain scale quickly - particularly in Europe - as it bids to catch up with rivals such as Dubai government-owned Emirates EMIRA.UL and Qatar Airways.

In December, the unlisted airline raised its stake in Air Berlin (AB1.DE) to nearly 30% from just under 3%, paying approximately 73 million euros and lending the carrier US$255 million.

Last month, it bought a 3% stake in Irish airline Aer Lingus (AERL.I) as a precursor to a commercial tie-up that could help the carrier gain more European routes.

Virgin Australia's foreign equity ownership is currently sitting at 46%, with 26% held by Richard Branson and 20% by Air New Zealand AIR.NZ.

Its shares rose 1.2% on the Australian bourse on Tuesday following the announcement and after rival Qantas (QAN.AX) warned of a likely first annual net loss since its privatization in 1995.

Etihad began flying to Australia in 2007 and the two carriers together operate 24 flights a week between Abu Dhabi and Australia.

The airline's first-quarter revenues rose 28 percent on the back of increased passenger numbers and the expansion of its global network.